Telling people to leave finance

I used to work in finance, and now I don’t. I haven’t regretted leaving for a moment, even when I’ve been unemployed and confused about what to do next.

Lots of my friends that I made in finance are still there, though, and a majority of them are miserable. They feel trapped and they feel like they have few options. And they’re addicted to the cash flow and often have families to support, or a way of life.

It helps that my husband has a steady job, but it’s not only that I’m married to a man with tenure that I’m different. First, we have three kids so I actually do have to work, and second, there are opportunities to leave that these people just don’t consider.

First, I want to say it’s frustrating how risk-averse the culture in finance is. I know, it’s strange to hear that, but compared to working in a start-up, I found the culture and people in finance to be way more risk-averse in the sense of personal risk, not in the sense of “putting other people’s money at risk”.

People in start-ups are optimistic about the future, ready for the big pay-out that may never come, whereas the people in finance are ready for the world to melt down and are trying to collect enough food before it happens. I don’t know which is more accurate but it’s definitely more fun to be around optimists. Young people get old quickly in finance.

Second the money is just crazy. People seriously get caught up in a world where they can’t see themselves accepting less than $400K per year. I don’t think they could wean themselves off the finance teat unless the milk dried up.

So I was interested in this article from Reuters which was focused on lowering bankers’ bonuses and telling people to leave if they aren’t happy about it.

On the one hand, as a commenter points out, giving out smaller bonuses won’t magically fix the banks- they are taking massive risks, at least at the too-big-to-fail banks, because there is no personal risk to themselves, and the taxpayer has their back. On the other hand, if we take away the incentive to take huge risks, then I do think we’d see way less of it.

Just as a thought experiment, what would happen if the bonuses at banks really went way down? Let’s say nobody earns more than $250K, just as a stab in the arm of reality.

First, some people would leave for the few places that are willing to pay a lot more, so hedge funds and other small players with big money. To some extent this has already been happening.

Second, some people would just stay in a much-less-exciting job. Actually, there are plenty of people who have boring jobs already in these banks, and who don’t make huge money, so it wouldn’t be different for them.

Finally, a bunch of people would leave finance and find something else to do. Their drug dealer of choice would be gone. After some weeks or months of detox and withdrawal, they’d learn to translate their salesmanship and computer skills into other industries.

I’m not too worried that they’d not find jobs, because these men and women are generally very smart and competent. In fact, some of them are downright brilliant and might go on to help solve some important problems or build important technology. There’s like an army of engineers in finance that could be putting their skills to use with actual innovation rather than so-called financial innovation.

For me the two hardest things with the move have been (1) every other place I’ve worked just does not have the same concentration of bright, capable people and (2) shrugging off the culture in which your sense of worth is a function of your salary has been way harder than I expected. I always believed I was not defined by this but the value system is way more insidious than I realised. Still working on it…

mpzwemer

October 3, 2012 at 5:36 pm

Completely agree with you on #2, but not #1. I left finance and landed at a start-up where I am constantly blown away by the calibre of the people. What makes it even more impressive is that they actually want to be there.

Good artice by Cathy O’Neill. But she misses another group – the banking drop-outs. Many people disillusioned by today’s banking careers are resigning but having difficulty to find other forms of employment. Difficult labour market is one reason. Distrust of (former) bankers is another.

Constantine Costes

September 30, 2012 at 10:55 am

You are not alone, Cathy. As you know, I left finance four years ago and am much happier now.

Tim Cull

September 30, 2012 at 10:59 am

I left (voluntarily!) in 2009 and have been much happier since even though I’ve only just begun to approach my former pay this year. Well worth the jump

Cathy, well said. I think that how and why any society decides which activities to reward and which to punish, as well as the magnitude and nature of those rewards and punishments, is literally how that society defines fairness. That we rewarded the banksters so extravagantly instead of punishing them says a great deal about what we think is fair.

Changing the nature of the social, economic, and political institutions that determine rewards and punishments, as you suggest for the banking industry, is, I think, the only way things will change.

To me, the decision to either stay or leave working in corporate financial mathematics would depend on the level of reform one perceives to be possible. A test for such a perception could easily be based on whether or not one finds sufficient consensus among cohorts that many of the assumptions and methods used, especially in derivative instruments, are incredibly #BadMath, founded on calculational convenience rather than anything related to credible reality.

I’m curious about the point you’re making. Assuming that “natural” is the opposite of “artificial”, what exactly do you consider “natural” about any particular rate of pay?

Bobito

October 1, 2012 at 5:10 am

This is easy to answer. Unlimited pay is clear evidence of an inefficient imperfect labor market. No finance guy is generating so much value for society as to justify his salary. He is generating $$$ for his employer, but that’s not adequate justification. The pirate generates $$$ for the pirate captain. The navy exists in part to prevent piracy. The modern democratic government exists in part to prevent feudalism. Why anyone should be allowed to earn huge amounts of money is beyond me.

equilibrium

September 30, 2012 at 2:53 pm

What if a person is in finance because they just love it – the thrills, the salary and bonus, the fun of entertaining clients and “business dinners” (and other events), the opportunity to work with brilliant people?

That’s why I do it.

If it stops being awesome, I will do something else. In the meantime, if it’s working well for a person … why leave?

G.george

September 30, 2012 at 3:32 pm

Because it might be bad for society.

equilibrium

September 30, 2012 at 3:58 pm

Fair point, but the prospect of vague and hypothetical future negative effects on society, compared with tangible and immediate positive effects personally … not a very compelling trade.

Bartimaeus

October 1, 2012 at 1:51 pm

One better: it has been bad for society. The financial meltdown of 2008 was caused by the creation of sale of securities that, to put it charitably, were crap; it’s not hard to imagine such a scenario recurring. The effects of the crash were quite tangible; can you really balance causing another one of those vs. your next dopamine high?

equilibrium

October 1, 2012 at 7:40 pm

I’m looking at the situation personally, not globally. I haven’t personally contributed to any financial meltdowns or blow-ups, nor has any firm I’ve worked for. If I honestly thought my company was going to destabilize the financial system, that is another matter – but I don’t believe that.

It’s sort of like saying that a person shouldn’t work on heavy-water nuclear reactors because the Chornobyl disaster happened – yes, they are both part of the “nuclear power industry”, but the former is designed as a safe and self-limiting technology from the ground up, while the latter suffered from instability, and was susceptible to operator error, right from the start.

sven

October 1, 2012 at 4:26 pm

“hypothetical future negative effects on society”? Wow. You have not been paying much attention lately, have you?

equilibrium

October 1, 2012 at 7:42 pm

See above – my point was that I wasn’t a part of such disasters. I won’t apologize for the failings of an entire complex industry of which I am only one individual working in one niche.

“Because it might be bad for society.”
Your statement may be “bad for society” as any statement that is regarded to be truth when in fact is false.
For surely you do not wish to say that Warren Buffet, Bill Gates, Steve Jobs, as well as
many true philantropist are bad for society.
Rather it is, “what one does with these gains, not so much as as what speed or amount of gain.”
What if Dr. M. Yunus were to suddenly “gain” $10 trillion in the next 30 days ?
How “bad for society” would -ending poverty be ?

IT’s in how we redistribute the Wealth ! justaluckyfool.

Paul

September 30, 2012 at 5:14 pm

Its not immediately clear to me in what ways a society without finance – or the need for it – would be better?
I can give you an example of such a society from recent history: Albania under Hoxha. (You can read his works at Marxists.org. Trully fascinating)

sven

October 7, 2012 at 3:31 pm

That argument only holds if you stretch the term “finance” to a point in which in becomes meaningless. Which is, sadly, where we are now.

We need bright people making capital allocation decisions for real projects and businesses that need financing to create assets and add value to society. I’m willing to presume these financiers earn their high salaries.

I have a much harder time seeing the value added by other aspects of high finance, particularly those who claim to provide “liquidity” to markets through trading. In my mind, this activity is way too costly, takes up way too much of society’s intellectual capital and is almost certain to fail when we need it most. Much of the “income” from this activity depends on deceiving people and their agents on the other side of transactions, eroding social capital and destroying the trust needed to build and maintain societies worthy of human life. It’s unfortunate that so many brilliant people have chosen this path to riches rather than creating real assets and solving real problems that clearly add value to society.

equilibrium

October 1, 2012 at 7:44 pm

I think the tragedy of the commons argument is one of the best ones contra the current state of the finance industry, actually. Of course, it’s a structural thing, not something that each individual is responsible for. No one wants to be that first martyr and sacrifice their bonus for the common good.

Amanda

October 1, 2012 at 2:01 am

Like your frankness in stating “That’s why I do it.” People are free to stick to what works for them vocationally. I for one do not continue or stir up debate when someone is showing or telling me who they are. I choose to just believe them for now.

equilibrium

October 1, 2012 at 6:34 am

Thanks, it sounds like you get where I’m coming from. I might feel quite differently if I were (e.g.) working i-banker hours or reporting to the MD from hell, for example. (I’m grateful that I’m not.)

As it stands now, my specific situation is a good one for me, one that I’ve worked hard to get into. I feel that I’ve earned it and paid my dues.

Of course, it may not always be as fun as it is now, and I sure don’t judge others for deciding that a given career field is not the best one for them (“a mile in their shoes” and all that).

Acadiana

October 2, 2012 at 4:23 pm

I’m kind of in the same boat as you, equilibrium. I’ve been working for myself as a merchant banker and PE sponsor (of the non-leveraged variety) for seven years and rather enjoy it. And I can’t find a single incidence where I was working on anything that remotely had anything to do with the financial crisis (I work with relatively small companies – in the $25 million to $250 million capitalization range). So, like you, I ask myself, “Why change anything? I work for myself and I love what I do.”

equilibrium

October 3, 2012 at 5:38 am

@Acadiana – good point.

In my work, I just don’t feel like I’m trading morals for cash or doing something questionable. I do think there exist some areas in finance where I would feel that way – I’ve just never worked in them (and have no plans to).

If it ain’t broke…

On the other hand, respect to those who realize that they are in a work situation that they *don’t* want and seek to leave it. That’s not an easy change to make. I just don’t think that represents everyone in finance.

payload

September 30, 2012 at 3:39 pm

“just as a stab in the arm of reality.” thanks for this article, its confirmative to me

“Much of the “income” from this activity depends on deceiving people and their agents on the other side of transactions,”
If your initial statement is false, then all statements added to it become false.
So “much of the income…where did you get that???
“Because it might be bad for society.”
“The Wealth of a Nation is its Redistribution of Wealth” by justaluckyfool.

Widespread fraud in mortgage origination and securitization has been well established. Creating these instruments and using credit default swaps to bet they’d fail is essentially insurance fraud. When municipalities are sold swaps and derivative products with risks they don’t / can’t understand, I call it deception. Many derivatives contracts are so complex that nobody can reasonably understand them. Lehman-style earnings manipulation and accounting tricks deceive investors in public corporations. I could go on but … you get the picture.

If financial products were simple and transparent, there would be there wouldn’t be much money in trading them. The more complexity and opacity you add to the product, the less efficient that market will become, and the easier it will be to deceive a customer or counter-party. The deception gets easier when the customer/counterparty is an agent – a pension or retirement fund where losses can be hidden or “unrealized.” Worse, there can be incentives – career opportunities on the other side – for those agents who buy lousy deals that create big paydays on the sell side.

So, it’s not surprising that we’ve seen far more complex financial products trading over the past few decades than are necessary to efficiently finance real assets. To me, this pretty much explains why the financial services sector has grown from 2% of GDP to 7 or 8% of GDP since 1980. Efficient, transparent financing just isn’t as profitable as complex, deceptive financing.

Qasim

September 30, 2012 at 8:12 pm

Good job for leaving finance and calling out the industry and thank you for telling us about it but: ” we have three kids so I actually do have to work”?

I can think of a few parts of the country, and the world, where you can hash out three kids on one salary. I don’t know your personal economic situation of course, but it seems like an odd statement from someone who is (very justly I feel) calling out a bunch of people addicted to a certain lifestyle.

Couldn’t agree with you more Cathy. After a decade in the industry, I’ve finally decided that I’m going to leave in a few months in the hope to study medicine. I’ve always wanted to be Doctor but I wasn’t able to secure an undergraduate place, so I completed a degree in Molecular Biology instead and fell into the finance industry after I couldn’t find a job in my field of study. At first, the amount of money and how quickly you can make it was a bit exciting but the novelty wore thin very quickly. How I was making this money did not sit well with me, so I decided I would go back to what my heart desires which is the sciences. However, I should mention that if it wasn’t for my job in the finance industry, I would not be able to save the money I have to enable me to go back to school full time and not be concerned about whether or not I am going to be able to support myself.

Martin

October 1, 2012 at 4:56 am

Hi,
I’m not sure what your job type within banking system was (mathbabe… some market analysis and predictions? came here from hacker news) Some statements in text are oversimplified, and real world is far from black & white. My story – IT developer, did IT work for many companies in quite a few countries within Europe (electricity transport, goverment, telco, insurance, local municipality, retail sellers, car manufacturers, and lately, couple of banking projects) and let me tell you this – banking in IT is SAME as everywhere else. They develop new systems, integrate them, maintain, bugfix etc. Whether data represent client portfolio structure, car sales for a given dealer or property structure in given part of town is not important from developer’s point of view. Every job had its + and -, but variations are more about different companies, rather than different industries.
Sure, cash flow is not bad, but it’s up to you how you use it. Save money, invest, spend in shallow party life? Why not, but just because everybody around is doing it doesn’t mean it’s a best way. It comes down to your personality type, if you just follow the crowd… OR – you can actually help this world, people around you, because with cash comes some power to do so. Help your parents who made you who you are today, your friends who are not in such a good situation, or half of world that is living in poverty.
Running away in to join startup that might potentially, some day, if everything magically works out make a difference is move from “I can do change” to “if .. and if .. then… and at the end I might… we’ll see”.

Bobito

October 1, 2012 at 5:07 am

Not a single comment mentioning greed.

400K a year is not justified by the benefit to society. It is prima facie evidence of something wrong with the economic system.

To those who have never been around such smart, hard working people as they were around in finance – have you ever been around such arrogant, greedy, ambitious, immoral people in any place but finance?

I became an Economics major at Columbia mostly due to the attitude of my former classmates at Stuyvesant, many of whom believed that if you didn’t work in finance you weren’t important or successful. I started working in finance after I graduated, but I didn’t find the work too challenging while the stress was unbelievably so.

I don’t miss working as an employee in finance primarily because of the attitude toward employees. I don’t particularly appreciate being considered disposable or being judged on ridiculous, unrealistic standards during interviews.

I might be stuck in finance right now if I hadn’t stumbled across the Mathematics department where my professors have always told me that I’m smart. In finance I was expected to ignore this fact just because the person I’m talking to has more money than me or holds a higher ranking position than mine.

I worked my whole life to prove to myself that I’m smart and in the process, I’ve sacrificed most of my childhood. I have no idea who I’m suppose to forget everything I’ve been through in order to deny this fact (besides, doesn’t denying this technically mean I’m lying?).

I started considering a life in science partly because I want to work in a field where my ‘attitude’ is not a problem, but necessary. While science isn’t a perfect alternative to a career in finance (intellectual achievements can also have addictive quality that is dangerous), at least the benefits of scientific achievement are not only exponential, but available to more than just a select few in society.

Maybe if more people knew about the non-financial benefits of other fields, they would be willing to leave finance as well. That being said, this is not to imply science does not offer financial benefits. Eric Lander, who the NYT profiled earlier this year, proves that a good scientist/mathematician need not be poor nor unappreciated.

GothamGuy

October 1, 2012 at 3:47 pm

for you folks who have left finance – where have you landed? very interested to hear specifics of your stories, am considering a similar move myself – thanks much!!

I left in 2009. I got the: thanks for beating your market benchmarks but revenues are down 30%. I had been saving and took 6 months off to be a stay at home dad. Then 1 year to polish my relevant web data skills. Now I make work in web search, making enough money, but my job is much more fun, lower stress, managers are better and I don’t have to worry about the equity markets.

I made the jump, quant trader on a prop desk to data scientist at a startup. I tell my old quant friends I’m making a long-maturity options play.

Kaleberg

October 1, 2012 at 4:38 pm

The financial sector has been growing for decades now, but it is not providing any new services and definitely not demonstrating any increased efficiency. For example, does it provide better, safer, more reliable pensions? Of course not. Is it easier and less expensive to get a new business loan? Of course not. Does the system operate with sufficient margins not to need frequent government bailouts? Of course not.

So what we have is a state subsidized, barely economic, bumbling, inefficient system that pays off well for a handful of commissars. Yes, it still pays well to be an apparatchki spouting the party line mindlessly and cashing one’s paycheck, but there is no reason for continuing the massive government subsidies. If the government stopped all the welfare payments and simply had the Fed open a retail window we could ditch the whole sector.

For those defending the field as a good destination, some sobering reality from today’s FT re London hiring:

The financial services sector has cut 9,000 jobs over the past three months as business volumes and profitability fell for the first time in more than three years, the CBI employers’ group and PwC have reported….Financial services groups think growth in business volumes will resume in the next quarter, according to the CBI/PwC survey but they also expect to cut 3,000 more jobs.http://www.ft.com/intl/cms/s/0/4bff64c8-096d-11e2-a5a9-00144feabdc0.html#axzz285zRZIC6

i’ve worked in tech startups and now a small hedge fund, which is very much like a tech startup..

not sure the distinction you are making is correct..

i think its more to do with working for a huge company like Apple, Microsoft or Google and working for a small company where you’re shoulder to shoulder with the founders… (it doesn’t matter if its tech, finance, biotech or whatever)

Lise Heller

October 7, 2012 at 3:43 am

“the people in finance are ready for the world to melt down and are trying to collect enough food before it happens”

I had more than a sneaking suspicion that this was true. Thanks for confirming it, Cathy.

I firmly believe that we should only do what we are interested in rather than just carrying on with it without any interest. And leaving a job or a field is really a very tough decision. But I think if one has the talent then he could achieve anything in life.

People seriously get caught up in a world where they can’t see themselves accepting less than $400K per year.

Do you think that is cultivated? After all, how can you ask for more when you’re earning $250k/year, unless you really believe that’s insufficient?

It’s pretty easy to make any large income number appear small. Take off half for tax, then take off half to save for mortgage. Take off half to save for retirement, then compare that number to an average person’s income. (conveniently forgetting that they also have to save for retirement, just say “and $40k is not a big number, that’s barely average!”. And also forgetting that half the people below median are, also, really alive and living on less than $40k/yr)